PROPERTY AND CASUALTY INSURANCE EXAM WITH VERIFIED ANSWERS

PROPERTY AND CASUALTY INSURANCE EXAM WITH VERIFIED ANSWERS 1. Specific insur- ance 2. Blanket insur- ance This type of insurance designates a particular item to be insured This type of insurance covers more than one item of property at a single location or one more items of prop- erty at multiple locations. 3. Speculative possibility of both gain and loss. Not insurable. 4. Pure only the possibility of loss. Insurable. 5. What are the 5 methods of man- aging or handling risk? avoid, control, retain, and transfer risk. 6. Hazard A condition or situation which increases the chance for loss 7. Physical Hazards a hazard that arises from the condition, occupancy, or use of the property itself. ex: skateboard left on the steps 8. Moral Hazards when an individual through carelessness or by irrespon- sible actions can increase the possibly for a loss. ex: person who drives carelessly just because they know they are insured. 9. Morale Hazards when a person might create a loss situation on purpose just to collect from the insurance company. ex: Prearranged, faked theft of someone's old vehicle so they can get an insurance payout to buy a new vehicle. 10. Replacement Cost The amount of money it would take to replace a damaged or destroyed item with one of like kind and quality AT THE TIME OF LOSS. No deduction for depreciation. 2 / 37 PROPERTY AND CASUALTY INSURANCE EXAM WITH VERIFIED ANSWERS 11. Actual Cash Value Replacement Cost, minus depreciation. (ACV) 12. Pair and Set Clause Loss to one item of a pair or set does not constitute loss to the entire pair or set. 13. Appraisal A method of resolving disputes between insurers and insureds over the amount owed on a covered loss. -both parties select an appraiser -the two appraisers select an umpire -if the appraisers do not agree, the umpire is consulted -the amount agreed on by 2 out of 3 is the amount that will be paid 14. Subrogation An insurer's right to recover the amount of its loss pay- ment from the third party who is legally responsible for the loss. 15. Arbitration this condition is similar to the Appraisal Condition but it is not limited to disputes over the value of the loss. It may also be used to resolve other areas of disagreement between the insured and the insurance company. 16. What does WC SHAVVER stand for? 17. What does BIG AFFECT stand for? Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehi- cles, Volcanic eruption, Explosion, Riot Burglar damage, Ice & snow weight, Glass breakage, Accidental discharge, Falling objects, Freezing of pipes, Electrical damage, Collapse, Tearing apart. 18. Insolvency A financial state that occurs if liabilities are greater than assets. 19. Law of Agency Knowledge of the Agents is Knowledge of the Principal (Insurance Company) 20. Principal Insurance Company 3 / 37 21. What is the ISO? Insurance Services Office which is an organization es- tablished for the benefit of its member insurance compa- nies. This organization gathers statistics, provides loss costs, drafts policy forms and coverage provisions and conducts inspections for rate making purposes. 22. Coinsurance Clause Requires the insured to carry a minimum specified amount (generally 80%) of the replacement cost value of the insured property in order for partial losses to be paid in full. 23. Estoppel A legal bar to changing or denying a fact because of one's own previous actions or words to the contrary. ex: If an insurance company representative intentionally or unintentionally gives the impression that a specific fact exists when it does not and a client relies on that impression and is damaged a result. 24. Binder A temporary contract of insurance, oral or written, offered by an insurer pending issuance of the policy. Usually written for a period of 30-60 days and remains in force for that period or until a permanent policy is either issued or denied by the insurer. 25. Warranty A provision in a policy that pledges that a condition does exist or will exist at some time in the future. 26. Deposit Premium Tentative charge made at the beginning of certain poli- cies and reinsurance agreements to be adjusted when the actual earned charge has been later determined. 27. Audit Verification of books or accounts to determine their ac- curacy. 28. Occurrence An accident, including continuous or repeated exposure to the same harmful conditions, which result in bodily injury or property damage. 29. Special Damages 4 / 37 type of compensatory damages that reimburse the in- jured part for direct and specific expenses involved in the loss. Such as medical expenses, funeral expenses and loss wages. 30. General Damages type of compensatory damages that reimburse the in- jured party for such things as pain and suffering and disfigurement. 31. Punitive Dam- ages type of damages intended to punish the defendant and make an example out of her to discourage others from behaving the same way. 32. Proximate Cause An act, through an uniterrupted chain of events, that can be determined to be the immediate or actual cause of a loss. 33. 4 elements of 1. The existence of a DUTY to act in a certain way negligence 2. A FAILURE to live up to this duty 3. An actual INJURY must occur 4. The failure in duty must be the PROXIMATE CAUSE of the injury. 34. Negligence An unreasonable or prudent act, A thoughtless or care- less act or one committed out of ignorance. It may be a non-act or omission, but it is NEVER an intentional act. 35. Casualty Insur- Refers to coverage designed to address the liability of ance individuals and organizations resulting from negligent acts in their personal, business, or professional roles. 36. Overinsurance Exists if a property or an insurable interest in property is insured by one or more insurance contracts against the same hazard in excess of the fair value of the property or of such interest. 37. Specific Insur- Coverage on ONE type of property (real or personal) in ance ONE location. 38. 5 / 37 Blanket Insur- ance A single policy written on an insured's interest for 2 or more different types of property (dwelling/building and contents) at the same location, or at different locations. 39. Uninsured Motor Vehicle A motor vehicle or trailer to which: - No liability coverage at the time of accident -has liability coverage but not enough to meet the state's financial responsibility requirement - Operated by a hit and run driver - Has invalid liability insurance at the time of the accident because the insurer is insolvent or denies coverage 40. Part C: Uninsured Motorist Cover- age this coverage compensates the insured for bodily injury ONLY as a result of an accident with an uninsured mo- torist. 41. Medical Pay- ments Insurance company agrees to pay for reasonable ex- penses incurred for necessary medical and funeral ser- vices because of bodily injury. - Covers first party. - "Stays in the car" - 3 years is time limit for incurring medical expenses 42. Supplementary Payments Payments made in addition to the Limits of Liability. - Up to $200/day for loss of earnings - Up to $250 for the cost of bail bonds required because of an accident. 43. Excess Any insurance that is provided for a vehicle you do not own, shall be excess over any other collectible insur- ance. Example: If you borrowed your friend's car, your own liability cover- age will act as excess to your friend's primary coverage. 44. Single Limit Basis 6 / 37 One amount representing the total (aggregate) limit for all claims arising from any one accident. (1 amount for Bodily Injury and Property Damage) 45. Split Limit Basis This limit has separate limits for BI and PD. For example: 20/50/10 - $20,000 for per person bodily injury, $50,000 total per accident bodily injury, $10,000 per accident for property damage. 46. Split/ Combined Single Limit 47. Part A - Liability Coverage This limit has only one limit that applies to both BI and PD. Provides payment for Bodily Injury (BI) & Property Dam- age (PD) damage resulting from the injured's use of an automobile for which the insured becomes legally liable. - Covers Third Party Only - Pays for both $pecial and General Damages 48. Loss of Use The inconvenience caused to an individual for the inabil- ity to use property. 49. Underinsured Motorist Coverage (UIM) Covers the insured when involved in an accident with a driver who has auto liability insurance, but the limit of this insurance is insufficient to pay for the insured's damage. 50. Collision The upset of a covered auto or its impact with another motor vehicle . 51. Comprehensive Addresses property damage losses to the insured vehi- cle involving losses other than collisions. Examples: - Contact with birds or animals - Theft or larceny - Fire - Hair, water, or flood - Vandalism or malicious mischief (VMM) - Breakage of glass 7 / 37 52. Nonowned Auto Any private passenger vehicle not owned by the insured being operated by the insured. Examples: - Rental Car - Temporary Substitute 53. APIP Additional Personal Injury Protection (optional) 54. OBEL Optional Basic Economic Loss Additional $25,000 to be assigned to any combination of Medical Expenses, Loss Wages, Rehab. 55. Red Lining No insurer may refuse to issue or renew an auto policy because of age, sex, race, occupation or principal place of garaging of the named insured. 56. Stacking The practice of adding (stacking) the limits of all applic- able policies to address a given loss. 57. Flood A general or temporary condition of partial or complete inundation of normally dry land areas. Must affect: - 2 or more acres or - 2 or more properties 58. Vicarious Liabili- ty liability situation where someone is held responsible for the actions or omissions of another person. ex: an employer can be liable for the acts or omissions of its employees, provided it can be shown that they took place in the course of their employment. 59. Write Your Own (WYO) Program instituted by the Federal Government which enables private insurers (Allstate, State Farm, etc) to 8 / 37 write, service, bill and settle claims directly with insureds while being backed financially by the federal government. 60. Tort Fault A civil wrong that violates the rights of another person. Can be intentional or unintentional 61. Fair Credit Re- porting Act Mandates confidential, fair and accurate reporting of in- formation on consumers by reporting organizations as well as organizations (such as insurers) which use the services of reporting organizations. Consumers must be informed if a credit report is needed in order to underwrite a particular line of insurance. 62. Express Authori- ty Authority specifically given to an agent, either orally or in writing, by the principal -Written authority is typically provided under the agency agreement which allows the agent to countersign, issue and deliver policies. 63. Implied Authority authority given by the insurance company to the agent that is not formally expressed or communicated. -This allows the agent to perform all of the usual and necessary tasks to sell and service insurance contracts and to full exercise the agents express authority. 64. Apparent Authori- ty Authority that states that an agent may have whatever authority a reasonable person would assume the agent has. 65. General Rule of Agency Any knowledge of the agent is presumed to be knowl- edge of the insurer (principal). 66. Producer (Agent) general term used to describe someone who sells insur- ance. 9 / 37 -represents the insurance company 67. Broker An individual, partnership, or corporation who, for a com- mission, acts or aids in any manner in the sale of insur- ance as the representative of the insured. In an insurance transaction, this person represents the insured. 68. Consultant Someone who, for a fee, offers advice on the benefits, advantages, and disadvantages of various insurance policies. -They don't actually sell insurance, only advice. 69. Solicitor like an agent, sells insurance and may even be autho- rized to collect premiums. However, they cannot issue or countersign policies, only agents can do this. -they represent the insurance company 70. Excess or Sur- plus Lines an agent licensed by the state to handle highly special- ized insurance coverages such as auto racing liability and tuition refund insurance. 71. Non-Admitted Companies are companies that are not authorized to conduct busi- ness in the state under ordinary circumstances. 72. Reinsurance A contract under which one insurance company (the rein- surer) indemnifies (insures) another insurance company for part, or all its liabilities. 73. Contract of Adhe- sion One party has greater power over the party in drafting the contract. The insurer has more power when it comes to preparing the contract even though the insured can request provisions or coverage. 74. Aleatory Contract it is a contract that is contingent on an uncertain event (a loss) that provides for unequal transfer of value between 10 / 37 75. Unilateral Con- tract the parties. For example, people can pay insurance premiums for years without having a loss or on the other hand some- one could experience a loss and be reimbursed a great deal more than they had paid in premiums. Only one of the parties in the contract is legally bound to do anything. -Insurance policies are one sided because only the in- surance company is legally bound to perform its part of the agreement. 76. Absolute Liability Imposed on defendants engaged in hazardous activities, such as harboring wild animals, using explosives, etc. The injured party does not have to prove negligence. 77. Strict Liability Commonly applied in product liability cases. A person or business that manufactures or sells a product makes an implied warranty that the product is safe.The business is then liable for defective products, regardless of fault or negligence. 78. Contract a legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration. ex: Insurance policy covers insured's losses in exchange for a premium. 79. Characteristics of -competent parties a valid contract include: -legal purpose -offer and agreement -consideration 80. Offer a promise that requires an act or another promise in exchange. 81. Agreement 11 / 37 occurs when the other party agrees to the offer or does what was proposed in the offer. 82. Consideration a thing of value exchanged for the performance promised in the contract. 83. Principle of In- demnity 84. Personal Con- tracts 85. Doctrine of Rea- sonable Expecta- tions 86. Contract of Ut- most Good Faith states that when a loss occurs, an individual should be restored to the approximate financial condition he/she was before the loss, no more and no less. No one will profit from the result of a loss. contracts that insure the person who owns the property not the property itself. states that a policy includes coverage's that an average person would reasonably expect it to include, regardless of what the policy actually provides. means that the insurer relies on the truthfulness and integrity of the applicant when issuing a policy and the insured relies on the company's promise to provide cov- erage and pay claims 87. Declaration -Almost always are found on the first page -Contain information such as the name of the insured, the address, and the amount of coverage, a description of the property and the cost of the policy. 88. Insuring agree- ment The heart of the policy which states in general what is to be covered or, in other words, the losses for which the insured will be indemnified. This section also describes the type of property covered and the perils against which it is insured. 89. Conditions This section states the ground rules for the policy. They describe the responsibilities and the obligations of both the insurance company and the insured. 90. Exclusions 12 / 37 This section describes the losses for which the insured is not covered. If and excluded loss occurs, the insured will not be reimbursed. 91. Definitions This section clarifies the meanings of certain terms used in the policy. 92. Endorsement These are documents that modify or change the original policy in any way and are attached to the original policy. These changes could be anything from broadening cov- erage, restricting coverage to changing the name of the insured. 93. Insurance from the federal gov- ernment may in- clude: 94. Insurance from state government may include: 95. Residual Market Insurance 96. Monoline compa- nies 97. Multiline compa- nies -War risk insurance -Nuclear energy liability insurance -Flood insurance -Federal crop insurance -Unemployment insurance -Workers compensation benefits insurance provided by the government which is not typi- cally available from private insurers. Such war risk, flood, workers comp, etc. insurance companies that only write one type of insur- ance policy. insurance companies that write more than one type of insurance policy. 98. Life insurance insurance designed to handle the risk of premature death or the risk that an individual may outlive his or her finan- cial resources. 99. Health and Dis- ability Insurance insurance designed to handle the risk of medical bills and loss of income resulting from injury or sickness. 13 / 37 100. Property insur- ance Insurance that includes many types of insurance which is designed to handle property risks, risks that will suffer financial loss because something we own is damaged or destroyed. such as dwelling, homeowners etc. 101. Liability risk is the risk that we will suffer financial loss as a result of our actions toward others. 102. Personal Lines are property and casualty coverage that protect an indi- vidual or family. 103. Commercial Lines 104. Suspense or dairy system are coverages designed for businesses. this system alerts an agent before a policies renewal time. 105. Countersigning this is when the agent signs each new policy prepared by the company before delivering it to the insured. Most states require this in order to validate the contract. 106. Responsibilities of an insurance agent: 107. Field underwrit- ing 108. Errors and Omis- sions (E&O) in- surance -selling insurance -issuing and countersigning policies -collecting premiums -providing a link between the insured and the insurance company -field underwriting risks this is when an agent uses pre-established criteria to seek out the type of business that is likely to be accept- able to the company. Agents should purchase this type of insurance to protect themselves against legal liability arising from inadvertent (unintentional) errors or omissions. 14 / 37 109. Agency Relation- ship 110. Exclusive (cap- tive) Agency Sys- tem 111. Direct Writer Sys- tem 112. Direct Response System 113. Independent Agency System 114. Independent or Nonexclusive Agent. 115. Investigative Consumer Reports 116. First Named In- sured exists when one party (an agent) is authorized to act on behalf of another (a principal-insurance company). The insurance company contracts with agencies, which are independent businesses, to represent and sell insur- ance only for that insurance company. The insurance company's agents are actually employ- ees. They may receive a salary, be paid by commission or a combination of both. The insurance company where there are no agents. These companies sell through direct mail or over the phone. Agencies that are independent contractors which con- tract with several different companies to represent and sell insurance for those companies. An agent who represents more than one company. This type of consumer report gathers data through per- sonal interviews with friends, neighbors, and associates. -Pre-notification is only required for this report This happens when there is more than one person listed as an insured. The first person listed will have more duties or rights in the policy. 117. Named Insured the person, business, or other entity named in the decla- rations to whom the policy is issued. 118. Additional in- sureds are designated persons, businesses, or entities listed as insureds that are covered under the policy. ex: mortgage company 15 / 37 119. Market Value This is the amount that a property could be sold for at the time of the loss. 120. Reporting poli- cies 121. Non-reporting Policies 122. Prejudgment In- terest 123. Postjudgment In- terest policies that do not charge a flat premium, the insured pays a deposit premium, then submits periodic reports to the insurer showing the status of the factors on which the premium is based; from these reports premiums are calculated and charged against the deposit. policies that charge a flat premium every time the policy is renewed. -ex: homeowners policies or auto policies. this is interest that may accrue on damages or injury before a judgment has been rendered. this is interest that accrues on the judgment after an award has been made but before payment is made by the company. 124. Risk the chance or uncertainty of loss. 125. Exposure condition or situation that presents a possibility of loss. 126. Four Methods to Manage Risk - avoid risk - control risk - retain risk - transfer risk 127. Loss Prevention Risk control techniques that reduce loss frequency. 128. Risk reduction Risk control techniques that limit loss severity. 129. Hold harmless agreement A contractual arrangement where one party assumes liability of a situation and relieves the other party of responsibility. 130. Insurance a contract or device for transferring risk from a person, business or organization to an insurance company that 16 / 37 131. Law of Large Numbers agrees, in exchange for a premium, to pay for losses through an accumulation of premiums. says that the more examples used to develop an statistic, the more reliable the statistic will be. This is used to predict the number of potential losses accurately so that the proper premium can be charged each month in order to accumulate adequate funds. 132. Speculative Risks are risks in which there exists both the possibility of gain and the possibility of loss. Insurance CANNOT be used to protect against these risks. 133. Pure Risks are risks that involve only the possibility of loss. Insurance can ONLY be used to manage these risks. 134. Insurable interest Says that before you can benefit from insurance you must first have a chance of financial loss or financial interest in the property. It exists when there is an actual economic interest in the safety or preservation of the subject of the insurance from loss, destruction, financial damage or impairment. 135. Elements of In- surable Risk -definite -must be unexpected -must create a financial hardship -cost of the loss must be calculable -insurance must be affordable -must be a large number of persons with a similar poten- tial loss -the loss must not happen to a large number of insureds at the same time. 136. Spread of Risk when an insurance company insures a large number of people across many towns to avoid a catastrophic loss. The greater the spread of risk, the less likely that there will be a catastrophic loss for the company. 137. Peril Cause of loss 17 / 37 138. Policy Period The time the policy is in effect for. Starts at 12:01 am. 139. Mortgage Clause "loss payable condition" condition found in property insurance policies that spec- ifies the rights and duties of the mortgagee under the policy. 140. Mortgagee Rights These are rights granted to a mortgagee (lender-bank) under a property contract issued to a mortgagor (home- owner) by virtue of the mortgagee's financial interest in the property. 141. Liberalization Clause 142. Recovered Prop- erty A clause that states if an insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will reflect the same changes. if property is recovered, the insured chooses to retain the property. If so the property value will be deducted from the loss. 143. Duties after Loss 1. give the insurer prompt notice 2. protect the property from further loss 3. keep accurate records when making reasonable re- pairs 4. cooperate with the insurer 5. show damaged property 6. send proof of loss within 60 days 144. Other Insurance Agreement 145. Legal Action Against an Insur- er 146. Schedule rating This condition sets out how any other insurance that applies to the same loss will affect reimbursement under the policy. no action can be brought against the insurer unless there has been full compliance with all terms of the policy and the action is started within two years after the date of loss. 18 / 37 This is a form of merit rating which applies a system of debits or credits to reflect characteristics of a particular insured. 147. Judgement rating The oldest form of determining rates. This premium is determined by considering the individual risk. No books or tables are used; premiums are established through careful judgement. 148. Manual Rating or Class Rating Most common method of rate determination. The rate is determined by consulting a manual which is usually stored on a computer. Rates are arranged by categories or classes. The agent or underwriter classifies the risk according to the defined criteria and then looks up the appropriate rate. Then the printed rate is multiplied by the number of units of insurance being purchased to get the premium. 149. Merit rating This rating starts with a class or manual rating which is then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate. 150. Experience rating This is a form of merit rating that modified the manual premium on the basis of the insureds loss experience (the dollars paid out in claims vs. the premium received) over a period, generally the three years preceding the current policy year. 151. Retrospective rat- ing 152. Unfair Discrimi- nation 153. Reinsurance De- partment This is a form of merit rating which bases the insured's premium on losses incurred during the policy period. This means that an insured cannot be given a lower or higher rate than another insured in and identical circum- stance. This action violates the law. the insurer cannot charge different rates for the same class of insureds This department helps protect insurance companies from catastrophic losses. 19 / 37 154. Loss ratio this ratio is used to compare the company's operations from year to year. It shows the percentage of losses the company incurred for every dollar of earned premium. It is calculated by dividing the amount of incurred losses by the amount of earned premium. 155. Incurred losses this includes amounts paid on claims for covered losses and various expenses related to handling claims. 156. The Expense Ra- tio is a ratio that indicates the cost of doing business. 157. Earned premium the premium the company actually earned by providing insurance protection for the designated period. 158. Underwriting ex- penses the cost required to acquire and maintain a book of busi- ness. It includes expenses for advertising, commission, salaries and other administrative costs and regulatory costs (taxes and licensing fees). 159. Written Premium the gross amount of premium income on the company's books. It includes both earned and unearned premiums. Premiums for new business, renewals, and policy en- dorsements make up written premium. 160. Underwriting this is the process of selecting certain types of risks and rejecting others so the insurance company will have a book of business that will produce the company's desired results. Part of the Underwriting Department 161. Policy analyst or screener 162.162. this person checks application to make sure all informa- tion is correct and complete. Part of the Policy Issue and Administration Department 20 / 37 Claim Adjusters or representa- tives these people are used to inspect a loss, determine whether there is coverage for the loss, estimate indemni- fication, and in some cases pay for the loss immediately. Part of the Claims Department 163. Actuaries This is the numbers department. These people deter- mine the rates to be charged for various types of insur- ance. Part of the Actuarial and Statistical Department 164. Legal Department This department interprets the various state insurance laws and helps the company keep its policies and prac- tices compliant. 165. Loss Control De- partment 166. Insurance Depart- ment 167. The National As- sociation of In- surance Commis- sioners (NAIC) 168. Admitted or Au- thorized Insurer. 169. Non-admitted or Unauthorized In- surer. 170. Domestic Compa- ny This department inspects factories, certifies boilers, and makes recommendations to insureds as to how risks may be avoided or reduced. Each state has on of these departments which is headed by an official with the responsibility for controlling insur- ance matters within the state. This commission is made up of commissioners from each state. Much of the nation's insurance laws are created through the Commissions recommendations. An insurance company who meets the department's standards and is authorized to do business in the state. An insurance company who is not authorized to do busi- ness in the state. A company operating in its home state. 21 / 37 171. Foreign Company A company conducting business in other states other than their home state. 172. Alien Company A company that is incorporated in a country other than the United States but is doing business in the states 173. Fiduciary A person who stands in a special relationship of trust to another person. 174. Misrepresenta- tion by an Agent when an agent falsely advertises the terms of benefits of a policy or the financial condition of the company. -NOT ALLOWED 175. Twisting a form of misrepresentation in which the agent convinces the client to cancel already-existing insurance and buy another policy from the agent. -THIS IS ILLEGAL 176. Rebating giving or offering some benefit other than those specified in the policy, such as cash, gifts or securities, to induce a customer to buy insurance. -This is illegal in all states except two. 177. Prior Approval Forms This is when insurance companies must obtain official approval BEFORE using new forms and rates. 178. File and Use Form This is when an insurance company can begin using forms and rates as soon as they have been filed. 179. Open Competi- tion Forms 180. Insurance Guar- anty Associa- tions This allows the companies to compete openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination. The public is also protected by this association which provides funds for payment of unpaid claims when an insurer becomes insolvent. 22 / 37 181. Prohibited Per- sons in Insur- ance- Federal Vi- olent Crime Con- trol and Law En- forcement Act (18 USC Sect 1033, 1034) This act prohibits anyone who has been convicted of a state or federal felony involving dishonesty or breach of trust from being involved in the insurance business without a waiver from the Commissioner 182. USA Patriot Act This act gives the federal government broad power to curtail attempts to launder money and finance terrorist activities. 183. Central Service Bureaus These bureaus have been established to help insurance companies collect statistics which they use the statistics to create loss costs. -the Insurance Services Office (ISO) is one of the largest examples of this. 184. Loss costs represent the key component of an insurance rate- how much an insurance company needs to collect to cover the losses. 185. Adverse Selec- tion This is the tendency for people with a greater than aver- age exposure to loss to purchase insurance. 186. Class 1- Frame: frame structures have outside support walls, roof, and floors constructed of wood or other combustible mate- rials. The exterior walls may be covered with stucco or brick veneer, and the interior walls are typically lath and plaster. 187. Class 2- Joisted Masonry: 188. Class 3- Noncom- bustible: These structures have outside support walls made of noncombustible masonry materials (such as concrete, brick, stone or tile) and a roof and floor made of com- bustible materials (such as wood) 23 / 37 189. Class 4- Masonry Noncombustible: 190. Class 5- Modified Fire Restrictive: 191. Class 6- Fire Re- strictive 192. Misrepresenta- tion by Applicant These structure has exterior walls, floors and roof are constructed of and supported by non-combustible mate- rials such as metal, asbestos or gypsum. These structures in the construction class have exterior walls constructed of masonry materials and a roof and floor made of metal or other non-combustible materials. These structures have exterior walls, floors, and roof constructed of masonry or fire restrictive material with a fire restrictive rating of 2 hours or less. These structures are constructed of masonry or fire re- strictive material with a fire resistance rating of 2 hours or more. a written or verbal misstatement of a material fact in- volved in the contract on which the insurer relies. This can be intentional or unintentional. 193. Material fact a fact that would cause an insurer to decline a risk, charge a different premium or change the provisions of the policy that was issued. 194. Concealment is similar to misrepresentation but it involves withholding information rather than misstating a material fact. 195. Fraud is a deliberate misrepresentation that causes harm. It is ALWAYS intentional. 196. Four elements of Fraud: 1. Someone deliberately lies 2. The intent of the lie is for someone else to rely on that lie 3. Another person relies on that lie 4, The other person suffers harm as a result of relying on that lie 24 / 37 197. Representations statements that the applicant believes are true. A policy cannot be voided because of this. 198. Warranties specific agreements that are made between the insured and the insurer that certain conditions will be met. -If these conditions are violated then the contract can be voided. Whether it was done intentionally or unintention- ally. 199. Waiver This is the intentional relinquishment of a known right. ex: Sometimes an insurer knowingly overlooks a condi- tion or exclusion that would normally have been grounds for denying coverage. When the insurer does this they give up the right to deny or refuse the policy. 200. The policy period or term the time between the effective date and the expiration date- this could be six months, one year or even three years. 201. Short rate basis This is when the insured cancels before the expiration date, the insurance company may keep the premiums that were already provided and also keep an allowance for expenses. 202. Pro-rata basis This is when the insurance company cancels the policy and retains only the earned premium and is not able to keep an extra amount for expenses. 203. Contribution by Limits a method of handling insurance when more than one coverage applies to a loss. Each coverage pays a portion of the loss in proportion to the relationship it's limit of lia- bility bears to the total limit of liability under all applicable insurance. 204. Flat cancellation This is when a policy is canceled by either party on the effective date. 25 / 37 205. Nonrenewal These provisions are less strict than cancellation require- ments but the insurance company may still be limited in the reasons for doing this action. The insured can make the decision to renew or not. 206. Policy Limit (limit of coverage) 207. Valued or Agreed Amount Contract 208. Named/Specific Perils 209. Open Peril/ All risk This is the maximum amount the insurance company will pay for a loss. this contract is written for a specified amount and it lists the value of the insured property as agreed to by both the insured and the insurer. this is when the policy lists specific perils or causes of loss that are insured against under the policy. -It ONLY covers perils listed on the policy. this is when a policy insures against ALL risks of physical loss except those specifically excluded from the policy. 210. Direct Loss this is a financial loss resulting directly from a loss to property. ex: such as your house burning down 211. Indirect Loss/ Consequential Loss 212. 5 Broad Cate- gories of Exclu- sions 213.213. this is a loss that is the result or consequence of a direct loss. ex: having to pay for a hotel because your house burnt down. -Non-Accidental losses -Losses Controllable by the Insured -Extra Hazardous Perils -Catastrophic Losses -Property Covered in other Policies 26 / 37 Non-Accidental Losses (Exclusion) 214. Losses Control- lable by the In- sured 215. Extra Hazardous Perils 216. Catastrophic Losses 217. Property Covered in Other Policies 218. Insured's Duties Following Loss These are excluded because they are certainties, not risks. ex: wear and tear, rust, corrosion, etc. These are excluded because it can be controlled or prevented with extra care or effort on the insured's part. ex: scratching, breaking, or chipping fragile objects. These are excluded from the policy because most in- sureds would not want or need the coverage. These types of perils can be covered by and endorsement and an extra charge. ex: earthquakes these are excluded because they arise from war or nu- clear disasters These are excluded because the policy does not cover property on other insurance policies. ex: a policy that covers personal property would normally exclude cars because there are other policies that cover those. -give notice of claim -protect the property from more damage -complete a proof of loss inventory -make time for inspection -submit to examination under oath (if required) -assist insurer with claim investigation 219. Valuation Method used by the insurance company to determine the appropriate payment for a loss. 220. Salvage Value Damaged property that can be retrieved, reconditioned, and sold to reduce an insured loss. 27 / 37 -salvaging goods can reduce the cost of a claim for the insurance company 221. Deductible the dollar amount the insured must pay on each loss. the insurance company pays the remainder of each covered loss, up to the policy limit. 222. Primary Insur- ance this is the name for the insurance that pays first, up to its limit of liability or the amount of the loss, whichever is less. 223. Excess Insurance this is the name for the insurance that is applied after the primary insurance pays their limit.. 224. Vacancy this term means both people and property are absent from a premises. -not covered after 60 days. 225. Unoccupied this term means the absence of people. 226. Intervening Cause this is when an independent action breaks the chain of causation and sets in motion a new chain of events. 227. Third party losses this type of loss is a liability loss. -the first party is the insured -the second party is the insurance company -the third party is the person who suffered injury or dam- ages. 228. First party losses this type of loss is a property loss. -the only party is the insured. 229. Bodily Injury (BI) This is injury, sickness, disease and death arising out of injury, sickness or disease to the body. 230. Property damage (PD) This is damage to or destruction of property, including loss of use of property. 28 / 37 231. Personal Injury (PI) 232. Per Occurrence/ Per Accident This is slander, libel or false arrest or invasion of privacy of a person. This refers to a loss that occurs at a specific time and place or a loss that occurs over time. 233. Aggregate Limit this is the limit or the total amount the insurance company will pay for multiple claims over the course of one policy term. 234. Per person limit this limit states how much will be paid for injury to any one person in an occurrence or accident. 235. Scheduled Per- sonal Property Endorsement 236. Permitted Inci- dental Occupan- cies Endorse- ment 237. Home Day Care Coverage En- dorsement 238. Watercraft En- dorsement this is an endorsement that provides a separate schedule of insurance for one or more of nine major categories of valuable property. -jewelry -furs -cameras -musical instruments -silverware -golfer's equipment -fine arts -postage stamps -rare and current coins this endorsement overrides the exclusions under the homeowners forms that apply to the insured's business activities conducted on the residence premises. this endorsement allows the business to continue this endorsement extends the homeowners coverage to this type of business. The premium for this endorsement is based on the number of children in the insured's care. this endorsement allows for the purchase of coverage for: 29 / 37 239. Business Pur- suits Endorse- ment 240. Personal Injury Endorsement -watercraft or sailboat up to 26 ft in length -Outboard motors greater than 25 horsepower. This endorsement provides liability coverage for a busi- ness conducted away from the residence premises. This endorsement modifies the definition of bodily injury to include personal injury (slander, libel, false arrest) 241. Flood Insurance this coverage protects against flood for almost any build- ing that is walled and roofed and is principally above ground and is in a fixed location. 242. National Flood In- surance Program (NFIP) 243. Two Types of Flood Insurance Programs 244. Emergency Flood Insurance Plan 245. Regular Flood In- surance Plan this program made flood insurance available to eligible communities through government subsidization. this program is managed by the Federal Insurance Ad- ministration (FIA) a branch of the Federal Emergency Management Agency (FEMA). -Emergency -Regular -this coverage has $1,000 deductible -Max coverage for this plan is $35,000 for buildings and $10,000 for contents -it only covers direct loss from flooding -property is also covered at an alternate location for 45 days when removed to protect it from flooding. -losses are paid on an actual cash value basis. -this coverage has $500 deductible -Max coverage for this plan is $250,000 for buildings and 30 / 37 246. Earthquake Insur- ance 247. Inland Marine In- surance 248. Personal Arti- cles Form (Inland Form) 249. Personal Proper- ty Form (Inland Form) 250. Personal Effects Form (Inland Form) 251. Boatowners/Wa- tercraft Package Policies $100,000 for contents -it only covers direct loss from flooding -property is also covered at an alternate location for 45 days when removed to protect it from flooding. -losses are paid on an actual cash value basis. this coverage may be added as an endorsement to commercial property, dwelling, homeowners policies. it covers damage to a structure, it's contents or both as the result of an earthquake. Form of insurance that originated from Ocean Marine Insurance. It provides open peril coverage for a variety of portable property, in addition to goods in transit. Sometimes referred to as a "floater policy" because it moves with property to protect it in various locations. This is a inland marine form that provides open peril for personal property including: jewelry, furs, cameras, musicals instruments, silverware, golf equipment, fine arts, stamps and coins. it also covers newly acquired property when it falls into a category already covered by the policy. this policy offers open peril coverage on a blanket basis for most kinds of personal property found at a typical home. This form is designed for individuals and families who want to insure their personal belongings while traveling. this policy is used to insure boats under the specified length and value which combines property, liability and medical payments insurance on an open peril basis. 31 / 37 252. Outboard Motor and Boat Insur- ance 253. Personal Yacht Policy 254. Personal Umbrel- la Insurance 255. Self-Insured Re- tentions 256. FAIR PLANS (Fair Access to In- surance Require- ments) 257. Commercial Package Policy (CPP) losses are paid at an actual cash value basis this type of insurance covers the physical damage ex- posure of boats. It is commonly provided under open peril inland marine floaters insurance and covers motors, motor boats, accessories, and trailers. losses are paid at an actual cash value basis this is an ocean marine form that provides a package of property and liability coverages for large pleasure boats. Coverage is open peril. type of policy that provides broad coverage for an in- sured's liability over and above liability covered by un- derlying contracts. This policy may also cover losses not covered by another policy. This is the amount of loss the insured must cover out of pocket. Is similar to the deductible. this does not apply to losses covered by underlying in- surance. If the loss is excluded under both the underly- ing policy and the umbrella policy there is no coverage available for the loss. This plan addresses the issue of property insurance availability. This plan makes insurance available to risks that were previously considered uninsurable because of environmental hazards. this plan states that no application can be denied simply because of environmental factors beyond the applicants control. This is a policy for commercial businesses that contains two or more lines of insurance or two or more coverage parts. 32 / 37 258. Interline Endorse- ment 259. Cancellation Con- ditions for CPP 260. Changes and Pre- mium Conditions 261. Transfer of Rights and Duties Condi- tion/ "assignment clause" 262. Business-owners Policy (BOP) 263. Business In- come- Additional Coverage 264. Business Income for Dependent this policy contains declarations, conditions and two or more coverage parts. this is an endorsement that modifies two or more lines of insurance. -the first named insured may cancel the policy in writing at anytime -the insurance company can cancel by mailing a written notice to the first named insured with 10 days notice for nonpayment, and 30 days notice for any other reason. these conditions state that the first named insured is the only person who can make changes to the policy and is responsible for paying the premium. This condition states that the insured's rights and duties under the policy cannot be transferred without the written consent of the insurance company, except when some- one has died. this is a commercial package policy that provides prop- erty and liability insurance to certain types of small busi- nesses. Applies to small, well managed, one location businesses with easily predicted coverage needs. -cannot exceed 25,000 square feet or $3 million annual gross sales at each location. -covered at an open peril basis. this coverage states that the insurance company will pay for loss of business income that occurs when the in- sured's business operations have to be suspended after a loss and income cannot be generated. this coverage covers loss of business income due to physical loss or damage to a business that delivers ma- terial or services the insured. 33 / 37 Properties- Addi- tional Coverage -$5,000 limit. 265. Employee Dis- honesty- Optional Coverage 266. Mechanical Breakdown- Optional Coverage 267. Business Liability Coverage this coverage covers loss to business personal property, money and securities resulting from dishonest acts of employees. this coverage states that the insurance company will pay for direct loss or damage to covered property caused by a sudden and accidental breakdown of an object. -no coverage for objects being tests. this covers the insured's legal liability that arises from bodily injury, personal injury and advertising injury. such as false arrest, malicious prosecution, wrongful eviction, slander and libel, use of others advertising idea, and infringement of copyright. 268. Indemnitee a party who is not an insured but is under contract to provide goods or services to an insured. ex: vendor 269. Protective Safe- guard Endorse- ments 270. Preservation of Property En- dorsement P-1: automatic sprinkler P-2: automatic fire alarm P-3: security device P-4: service contract P-9: another protective system this endorsement offers additional coverage for direct physical loss or damage from any cause of loss if the property has been removed to another location to pre- serve it. -the coverage only applies for 30 days. 271. this type of insurance provides coverage for a busines- sowner's real and business personal property. 34 / 37 Commercial Property Insurance 272. Control of Proper- ty Condition 273. Legal Action Against Us Con- dition 274. Mortgage Holder Condition 275. Builders Risk Coverage Form 276. Coverage under Builders Risk may cease if? 277. Extra Expense Coverage This condition states that an act of neglect of a person beyond the insured's direction or control will not effect the insured's insurance coverage. This condition gives the insured two years from the date that direct physical loss occurred to bring an action against the insurer. This condition promises to pay losses to any mortgage holder named in the declarations. This form covers commercial, residential, or farm build- ings that are under construction. This coverage is written for ONE year. -property is accepted by the purchaser -90 days have elapsed since construction was completed -the building is occupied or put to intended use -the insured's interest in the property ceases -the insured abandons the construction with no intention of completing it. this coverage reimburses the insured for expenses in- curred to keep a business going after a loss caused by a covered peril. 278. Suspension This means slowdown or cessation of the insured's busi- ness activities. 279. Perils covered under Commer- cial Property In- surance BASIC FORM fire, lightning, explosion, windstorm/hail, smoke, aircraft or vehicle, civil commotion, vandalism, volcanic erup- tions, sinkhole collapse and sprinkler leakage. 280.280. 35 / 37 Perils covered under Commer- cial Property In- surance BROAD FORM 281. Perils covered un- der Commercial Property Insur- ance SPECIAL FORM 282. Peak Season En- dorsement 283. Garage Keepers Insurance 284. Motor Carrier Act of 1980 285. MCS-90 Endorse- ment 286. Gramm Leach Bliley Privacy Protection Act 287. Drive Other Cars (DOC) Coverage Endorsement it covers all perils listed on the basic form as well as falling objects, weight of snow, ice or sleet, and water damage. This form covers ANY direct physical loss that is not specifically excluded from the policy. -OPEN PERIL COVERAGE. This endorsement allows the insured to carry increased coverage during certain seasons of the year when inven- tory or other covered property is higher than usual. this type of insurance covers the insured's liability for damage to customer's property that the insured has for servicing, repair, parking and storage. This is an act that required trucking companies to certify that they are able to meet financial obligations if they become liable for injury or damage arising from their trucking operations. this is an endorsement attached to the truckers coverage form to provide public liability coverage. is a federal law enacted in the United States to control the ways that financial institutions deal with the private information of individuals. this is an endorsement that extends the definition of a covered auto to include autos the named insured does not own, hire or borrow while being used by the person named in the endorsement. 288. Burglary the taking of property from inside the premises by a person unlawfully entering or leaving the premises. 36 / 37 -must be evidence of forcible entry or exit. 289. Robbery this is unlawful taking of property from the care and custody of another person. The unlawful person must have caused or threatened to cause bodily harm to a person or persons involved. 290. Theft the unlawful taking of property. this broad term includes robbery, burglary, etc. 291. Forgery this is signing the name of another person or organiza- tion with the intent to deceive. 292. Extortion the surrender of property away from the premises as the result of a threat communicated to the insured to do bodily harm to the insured or to an employee or relative who is being held captive. 293. Bond this is a guarantee that a specific duty will be discharged, a certain performance maintained or a specific obligation fulfilled. 294. Fidelity Bond this type of bond guarantees an employee's honest dis- charge of duty and are written to protect an insured against dishonest acts by employees. 295. Surety Bond this type of bond guarantees that someone will perform faithfully for whatever she agrees to do or that someone will make an agreed-upon payment to another party. 296. Workers' Com- pensation Laws 297. Assumption of Risk 298.298. these laws give employees the right to collect from their employers for injury, disability, or death that occurs in the course of employment. this allowed the employer to deny liability on the basis that the employee knew what the situation was like be- fore employment and assumed all of the risk of injury. 37 / 37 What three fac- tors are used to determine if the injury arose dur- ing employment? -time -place -and circumstances 299. CGL Commercial General Liability 300. Employment Practices Liability (EPL) 301. Directors and Of- ficers Liability In- surance (D&O) this type of liability insurance protects employers from losses arising out of wrongful termination, discrimination, sexual harassment and other employment related prac- tices. This type of errors and omissions policy protects individ- uals from being sued by stockholders.